If You Wouldn’t Buy it, You Should Probably Sell it

Dear Mr. Money Mustache,

I just came across your blog a few weeks ago after seeing a story about it on ABC.

While the idea of cutting back my lifestyle sounded horrible at first, once I dug in I saw what you were really talking about and it has been like a giant boxing glove hit me in the face. Until recently I thought we were doing pretty well. But suddenly I could see money leaking out everywhere in our lifestyle: the cable package, remaining student loans, restaurants, excessive driving, excessive air conditioning – everywhere.

My question is what to do about the decisions that are already “locked-in”. We have some expensive and not-that efficient cars (A 2010 Mazda CX-9 and 2013 Acura TL), but at least they are paid off so we might as well drive them forever, right?

Also, we live about 15 miles from work in a house that is way too big for the four of us, but on the bright side we bought it in on foreclosure in 2009 and the value is up about $100,000 since then.

Finally, and I have an old (2000) speed boat and a camp trailer we use occasionally in the summers – these are paid off as well, but they do cost something to store and maintain (about $2400/year).

We’ve started biking more and doing more local activities and the kids like it. I just wish we hadn’t locked in these earlier poor decisions.

—-

First of all, let me admit that the above person is somewhat fabricated. I find letters like this waiting for me every morning when I wake up, and so many of them follow the same general pattern that I figured we could create a great lesson by combining some of the best details into one composite letter. And that lesson is the one right there in the title:

Don’t let the boat anchor of your past mistakes drag on you forever into your future.

Clinging to past behaviors is one of the built-in weaknesses (also known as Cognitive Biases) that we humans are born with. In this case, we’re talking about Loss Aversion and maybe a bit of the Sunk Cost Effect: we tend to value things we already have, and things we have poured a lot of money into, even if they are in fact pieces of crap when measured on an objective quality-of-life scale.

“I’d hate to take the depreciation hit on this 2012 Dodge Ram 1500 BigHorn after making three years of payments on it!”

These prepackaged flaws are so powerful that we need to pull ourselves deliberately in the other direction in order to end up at a reasonable middle ground. Even when you think you’re living life in a reasonable fashion, this bias will still sneak up and bite you.

And it still bites me too – let’s look at another example from my own life right now. Do you remember that rental house I was so happy to have sold in the last article?

On paper, it looks pretty good: I was stuck with a supposed-to-be-$650,000 house back in 2010 that I was having trouble selling even with the listing price dropped down to $480k. Probably because the market value was more like 450. At the time, I felt stubborn and defiant:

“There’s no way I’m selling this prized bit of my work for $200,000 less than it is worth! I’ll just rent it out, collect some income, and ride the prices right back up. Then, justice will be served and my past mistakes won’t look so bad.”

However, and this is the key to this whole article, if the situation were reversed I would have given a completely different answer. Suppose it was the year 2010 in a different universe, and I was not saddled with that house. I was retired, had that same $450,000 sitting happily in index funds, and looking out at the carnage in the housing market. If someone had suggested I invest in this house, it would be a different conversation:

Random Person:“Hey man, do you want to buy a $450,000 house in a high-end neighborhood with a strict Homeowner’s Association? It’ll give you $2400 in rent, plus whatever appreciation the housing market provides. Property taxes will run you around $3200/year and the HOA fees are another $960. And don’t forget maintenance!”

Me:“Are you Effing Crazy!? I’m retired! I don’t need some fussy high-end rental. I’ll sit back and enjoy my index funds, or at least get something like a 4-plex that nets $4000/month for that kind of money!”

But cognitive bias struck, and I decided to rent out the place anyway.

And sure, things turned out roughly as a reasonable forecast would predict: I put it up for rent, and collected over $144,000 in rental income over the next five years. On top of that, the housing market recovered so the house appreciated by an additional $115,000. A total income of $259,000, which sounds pretty good on a $450,000 investment, right?

But wait. Let’s subtract the taxes and HOA fees at $20,800 over those five years.
Then subtract my maintenance costs, which added to about $10,000 (most of it spent just this past May as I restored the house to its original sparkling condition for sale).
Plus an estimate of the value of my labor for managing and maintaining it: 200 hours at $40, or $8,000.

This yields a net profit of about $220,000, meaning my $450,000 grew to $670,000.

It still sounds like an amazing windfall, but that’s just because $450 grand is a lot of money, and five years is a fair amount of time. On an annualized basis, this is like earning just 8%. Yet another example of how your money can work harder than you can.

What if I had put this money into the plain old conservative Vanguard S&P500 index fund (VFIAX) instead, and allowed all dividend payments to automatically reinvest?

Plugging the dates into our amazing IndexView tool, I can see that a stock investment would have roughly doubled in that time period if you include dividend reinvestment. In other words, if I had ditched that house at $450,000 and just kicked back for the next five years, that chunk of money would be over $900,000 today.

Hindsight is 20/20, as they say. The stock market could easily end up going sideways over a five-year period. But what matters is making the choice that is most likely to be the right thing for you. And that means thinking about today’s big decisions as if there were no past baggage attached to them.

In the introductory story, the brand-new Mustachian is currently burdened with a money-burning 2010 Mazda CX-9 SUV, which would fetch about $12,000 on the used market. If she were starting from scratch with $12,000 in the wallet and no car, would she buy the same vehicle? Or perhaps the far superior 2010 Honda Fit which handles better, will cut the running costs in half, and costs over $3,000 less?

The $3000 cash difference plus a savings of $2500 per year in fuel, depreciation and maintenance will compound to a wealth difference of over $30,000 per decade, just from this one decision. Not many people realize the staggering effects of a poor vehicle choice, which is the reason SUVs exist in the first place. But now that the new knowledge has been acquired, it is time to act on it. Since she wouldn’t buy the SUV right now, she should sell the SUV right now.

Similarly, moving a double-commuting couple 15 miles closer to work will save you close to $100,000 every decade in direct car costs alone, but much more than that if you factor in the value of your own time and health. Most people don’t realize the shockingly high cost of car-commuting. If they did, distant suburbs and the the entire phenomenon of “rush hour” would not even exist. But once you do get the secret memo, it is time to act on it and move.

Lifestyle trinkets like motorboats and rarely-used cabins, ATVs and country club memberhips seem like an harmless treat you indulge in when you get your first promotion at work. But they tend to add up and become a massive tax on your life – draining attention and cashflow to the tune of hundreds of thousands more per decade. Once you realize that these little weekend amusements are equivalent to chaining yourself to an office for an extra 40 years, you might weigh the decision differently. And so you can change your decision. Right now.

But What about Transaction Costs?

The Economists of the audience are probably a bit annoyed right now: “Mustache’s examples don’t account for the time and money you need to spend to change cars, or change houses! Often if you take these into account it would wipe out the first several months of savings or more!”

They are right to a certain extent. But I encourage people to push through the pain and get the deals done anyway, because making transactions is good for you.

Transactions, deals, friendships, and other arrangements with other humans are the highest-paying and often most rewarding thing you can do with your time. Even the ones that don’t go perfectly build your perspective and your Badassity.

Most of us make far too few transactions, and this lack of experience keeps us in fear, so we avoid them even more with each passing year. Your skill and comfort with life transactions is reflected directly in your wealth and the quality of your life.

So even if it does take a few hours to photograph the gas guzzlers and get them onto Craigslist, and even more hours to search out a new ride, make the investment and get the job done. The momentum you gain will start a chain reaction that helps you clean up all your other past mistakes.

What would you do differently if you could go back to age 19 and design your wealthy dream lifestyle from scratch?

How many of these things can you change and improve right now if you really put your mind to it?

I’m looking forward to getting fewer excuses for the past, and more announcements of massive change in the present, in my future emails.

Get MMM Automatically By Email

I’d like to note that when looking to downsize to simpler (e.g., cheaper, more reliable, smaller, more efficient) vehicles, to remember to search for those with ESC and side airbags if at all possible. The ’10 Fit is an example of a car that includes side airbags but not necessarily ESC, depending on your trim level; it didn’t become standard in the Fit until ’11. Each of these technologies are about as life-saving as the seat belt, and significantly increase your odds of living to enjoy your ‘stache.

Mike, can you provide stats? Steven Levitt (Freakonomics author) and others have questioned the relative value of airbags in general vs. seat belts, and the misleading nature of reports about how great airbags are. Links I can find online to side airbag reduction in mortality seem consistent with this… one of the top search results is to an article headlined “Side Airbags Reduce Driver Deaths by 37%” but in the body it’s clear that what is being reports is a reduction in side-strikes on the drivers side by trucks or SUVs, a far narrower claim. And since a Mustachian should be driving many fewer miles per year than average, it’s not clear that the incremental benefits would in fact “significantly increase your odds of living”.

Depending on whether you’re looking at frontal vs. side airbags, and which kind of vehicle you’re in, the stats vary. However, I believe the sources (e.g., the NHTSA and IIHS) that have researched the differences they make, and find them valuable. There are lots of folks out there who deny the effectiveness of seat belts, airbags, ESC, and a range of other auto safety features, and, well, it’s a free country. I believe the Levitt fellow also believes car seats aren’t significantly effective either. I do believe all of these features are very important, so I advocate for their use, even in the case of MMMs who do reduced driving (much as I wouldn’t suggest skipping seat belts because one only drove around town a few times a month). That said, I do also advocate for less driving for safety reasons, as that’s one of the many factors that distinguish countries with lower driver death rates from the US.

The NHTSA estimates ESC reduces the risk of a single vehicle fatality by 50%. Fifty percent of all fatal vehicle crashes are single vehicle crashes.. I don’t know what the specific statistics are for how much that risk is reduced in the kinds of vehicles and drivers you describe, but I could make the same argument that seat belts aren’t really of any use in vehicles with good brakes and careful drivers. The NHTSA’s estimates of reductions in death rates due to seat belt use are similar.

Electronic stability control isn’t even available in most vehicles that aren’t trucks, vans or SUVs….. And frankly, allowing some jack ass chatting on their cell phone in an SUV to avoid a single vehicle collision, just increases the chances of them killing someone later.

I’ve driven vehicles with traction control and vehicles without; a Mazda 3 with traction control turned on is easier to control than a Saturn SL2 which doesn’t even have the option of traction control, but not easier to control than a Geo Metro without the option of traction control, and one the traction control on the Mazda gets turned off it is much more difficult to control than either the Saturn or the Geo.

ABS…. I don’t believe I’ve ever been in a situation requiring emergency braking in a car with ABS, so I can’t compare….

What the hell are you going on about? My 2009 Hyundai Elantra (hardly an SUV or high-end car) has ESC. Yes, we did need to get the mid-level trim. Sonata came with it in the base model that year. I don’t know why you think the Saturn SL2 didn’t have traction control available. My 1995 Saturn SL1 (a lower end model than your SL2) has traction control. Yes, it WAS an option, has never had an issue and still works. Wasn’t that expensive either.

Hey, don’t poo-pooh the Saturn. Sure, I’m slower to accelerate than a semi and might as well be on an ice rink if there’s any slush, but it’s still a good 30-mpg rust bucket if you can pay to maintain it. Plus, it bounces off objects you slide into during the aforementioned figure skater impressions without damage…

Ike,
Actually all new light passenger vehicles sold in the US starting with the 2012 model year have ESC standard by law (see FMVSS 126). The only exception has been large trucks (like SuperDutys), but it is now available on those as well and is becoming increasingly available on larger commercial vehicles.

I’m a skilled driver (have done extra training, spent time on racetracks, etc, also have an excellent record) and I have a car with high end tires and updated suspension components.

There are times when unexpected driving conditions (oil on road, ice, or other drivers actions) where I have come close to an accident. In those cases luck has intervened. If I had ASC in my car luck would be less required.

It’s a basic fact that most sports cars are now faster with ASC etc activated, only professional racers can get more out of them. But do so only on circuits with wide runoff areas.

For the vast majority of drivers, electronic safety aids decrease the likelihood of a crash. This is increasingly the case with automatic braking, active cruise control and lane warning systems.

THe one thing I will say is that driver training usually doesn’t give instructions on how ABS should be used, as it will increase stopping distance in some scenarios, but allows greater control.

As soon as I started reading this past year I knew that my biggest mistake was buying a brand new Honda CR-V. It was just under a year old, but costing me around $700 per month just to keep on the road, including gas and insurance, but not including wear and tear. My wife and I immediately cut this out to a loss of only $390 but immediately started seeing the savings benefit. I only wish I would have gotten rid of my house in a different state that has had me hemorrhaging money for the past 4 years…. being dropped at the end of this month. Thanks again MMM>

“But once you do get the secret memo, it is time to act on it and move.” – I love that line… It says it all; its usually tough to forget the sunken costs and move on but often like its demonstrated in your example and in the post: Getting over Cognitive Bias and the sunken cost mentality can yield incredible benefits and unleash a brighter future. Way to go!

In the process of selling my motorcycle which I’ve had for 8 years since College. It’s very sentimental at this point but I noticed this year I’ve grown out of motorcycle riding for the most part. I was actually planning on doing a post soon about what I would do differently at age 19 like you said with hindsight, figured if some younger family members read it maybe it would help.

I’ve been contemplating job changes and moving to a new state like Colorado for more money, you’re right it makes me uncomfortable. I work for a tiny 8 person company that is very much like a close family and moving to another state would certainly be an wild ride experience since I’ve lived in Wisconsin my whole life.

You’d probably be right at home here in Longmont – it seems about 50% of my friends and neighbors are from Wisconsin for some reason. Maybe the culture of the state tends to build adventurous people who are more likely to move around?

I just moved out of Wisconsin, and I seriously considered moving into Stashtown/Longmont when I did. I spent the past winter in Denver, and I LOVED it. Winter was so much better when the high wasn’t -11 F. Plus Colorado was unseasonably warm. And if you’re used to having bike trails everywhere, then Longmont is a great place to settle.

I’d love to move over to CO particularly the greater Denver area as a big Ultimate Frisbee and Homebrewing guy but I feel like I’ve missed the boat and real estate will be pretty insane by the time I finish up grad school in a couple years. Would you still recommend people moving there given the rising costs in upcoming years? I think I should have pretty good job prospects in my field (chemial engineering, catalysis) to finish off my growing stache.

You might be right – prices in my particular part of Longmont have gone through the roof (I mean like $600k for a nice house that would have been $400k just two years ago). However, so far it is very localized – there are still plenty of cheaper neighborhoods in this city and parts of Denver as well. The key is tweaking both the job and neighborhood variables so you can get affordable housing AND no car commute.

I was shopping for houses in the ghettoist neighborhoods I could find. I gave up. There is nothing affordable. The only affordable deals are off-market cash deals. I guess the definition of affordable is subjective. I was looking at under $200k but everything that was like 80-90k 2 or 3 years ago is now like $175k and needs a ton work on top of that. I figure let the bubble pop and hopefully by then I’ll be a cash buyer. Maybe in Aurora, but who could ever stomach living in Aurora. Eh. I’m thinking about ditching everything and living in a slide in camper out of my $3700 2002 Tundra with 394,000 miles.

Hmm.. I wouldn’t consider a housing market that starts at $200k to be any sort of bubble – it is hard to build even a small house anywhere close to a wealthy city for that price, which means prices should tend to rise rather than fall.

The US has some of the cheapest housing in the world – consider other countries like Australia, New Zealand and Canada where comparable near-metro housing starts above $500k, and you will feel quite lucky to be shopping near Denver!

I was looking at a house in Jackson, Michigan for $999 (really) on 1/10 an acre; needs work but it is good enough condition that I’d be comfortable living in it while making repairs; but I passed because Jackson has no functional economy from which to make money :-(

Living out of a car rather than flushing money down the drain paying rent looks awfully appealing, but I am guessing I would have to forget 40 mpg in a twenty year old econ car and get something pricier :-(

I think neighborhood is the key. I live in Denver proper and while prices have certainly gone up, my neighborhood is still very affordable. I mean, if you want a McMansion in a trendy part of town, you’re gonna pay up the butt, but if you’re willing so settle for a reasonably sized home in a less popular (read less lily-white) neighborhood, there are plenty of affordable choices.

I wonder what neighborhood that is, EcoCatLady? I live in Boulder County and there are no cities that haven’t experienced tremendous RE price appreciation. I would be very surprised to learn of a neighborhood in Denver that is still “affordable.” Of course, the term is relative. And you may also have tradeoffs, such as the prevalent crime rate. Even in Boulder County (i.e. suburbs) we are experienced an uptick in car/home burglaries right now. Another aspect to be considered is traffic. OMG. Commuting is a nightmare on I-25, and 36 just got the HOV2, to be HOV3 in 1/2017. Also, those wonderful hiking/biking trails are really city trails in Denver. But I will say that Longmont still has some affordable RE and you will find great walking/biking trails and, even lakes.

I have a brother-in-law in Boulder and a sister-in-law in Loveland. The wife has been talking about moving to the area to be closer to them. It might just be the perfect excuse to dump the 3,300 sqft house and associated lifestyle.

Your writing and perspective have appealed to me ever since I first started reading your blog. I wonder if your Canadian background has a similar cultural perspective to people from Wisconsin, like me.

Any advice for finding the right community anywhere in the world? Longmont sounds incredible but I’m from the UK so is not going to happen. I wonder how I could find similar communities here? I’ve tried reading around but I’ve had little success and wonder if there’s anything you’d use to help with the process?

Finding the walkscore of places is a good way to start. If it’s high, then you can get rid of your car and save lots of money. I tried this website https://www.redfin.com/how-walk-score-works and got results for the UK, though they don’t include bikeability or public transport indices (like they do for Canada and the US). For example, where I live has a walkability index of 91, a transit index of 97 and a bikeability index of 91. Haven’t owned a car in 10 years, do all my grocery shopping – everything, by bike or on foot. Saved $80,000 (based on the CAA’s estimate that a car costs you $8000 p.a.).

If you feel you must have access to a vehicle, it’s also worth googling to see if there are car clubs in the area (Bristol has one, I think). That way you have access to a fleet of various motor vehicles and someone else does the maintenance. I belong to 3, membership was free to all of them and annual sub is $2 (which goes to charity). Only used any of the co op vehicles a total of once in the past 3 years though!

In terms of being walkable, amenities closer together and so on, UK towns are much more Mustachian than US ones right off the bat. Same as most in Europe as well as they are generally older, built before cars were around and we are not so in love with our automobiles in general either.

There are also plenty with affordable houses, nice parks, outdoor spaces, access to nearby nature, and other free entertainment.

General rule of thumb would be to avoid London unless you are a banker or some sort of executive, and then avoid the South East again unless you have a pretty decent paying job. I reckon I’m about borderline to be living in the SE and still make significant savings and I’m on about £60K right now including bonus (Soon to be dropping to ~£40K as going part time… heeeeyooooo!)

Admittedly, we do not get the same climate as sunny Colorado but hey… not much we can do about that apart from hoping the governments of the world decide to do nowt about global warming in Paris later this year! :) :(

Generally speaking, you are right about needing to avoid London and the South East in general. However, this is mostly due to property prices (as living costs do not have to be much higher than any other part of the country if you shop carefully).

I am earning £26k (my first job), working in London and I manage to save £900 each month. Of course, nowhere near as much I would like but moving up the wage chain takes time, I suppose. But I don’t think £60k or thereabouts is absolutely necessary – more like £40k.

Not all motorcycles and sorts of motorcyclism are evil – some may be the right choice on the righteous path of badassity. Just don’t buy a sporty one or a flashy cruiser or ridiculously big adventurer, get a scooter or universal small cc bike instead. I’ve made substantial savings (in money and time) from riding mine to work and on other occasions. And hey, some scooters and small displacement motorcycles are even fun!

My biggest piece of advice to my 19 year-old self would have been just 2 words: “Avoid Debt.”
That *alone* would have put me in a much better situation today at age 52, and I might actually be ABLE to ‘retire’…

I would also tell my young self that NO MATTER WHAT I might think is a “great use now”, that maxing out the 401(k) is SO MUCH MORE IMPORTANT. It remains, to this day, my $386,000 mistake. (This does not include all the bad ideas having invested that money instead would have prevented)

I wish my 19-year-old self would have heeded that advice. Instead, I made a series of unfortunate choices which resulted in an undesirable lifestyle and financial consequences that lasted for years. At least I learned eventually, right?
My worst money mistake was borrowing over 20K for a car when I made a little over $8 an hour. In my defense, I was only 20-years-old and absolutely clueless. I try to look at the bright side of things. That car loan helped my build my credit when I was young, and I continue to benefit from having a long and positive credit history. I also learned a lot from the experience, including the fact that I absolutely hate debt. I eventually sold that car for $2,500. Sometimes you just have to cut your losses and move on.

Looking on the bright side is good, (building credit) but we have not borrowed any money for about 25 years, so the only thing on our credit history is our single credit card. Of course we pay it of monthly. I recently used credit karma to check my credit score, I had no clue, I was thinking because I haven’t used credit, my score would show poorly, but it came back as 785.
The point is I’m not sure what it takes to have a high credit score, but in my case it is a single credit card paid of monthly. Also I have a limit of $11,000 but rarely have more than $1,500 of charges per month. I know that percentage of available credit used is one criteria in calculating your number.
Credit karma was free, but they get your personal data.

The following impacts credit score based on my experience.
1. Balance to Credit Limit should be low (whether you have 1 or 3 credit cards)
1.5 if you have 3 credit cards and have the means to pay off the balances on all 3 of them, DON’T close an account. (based on #1)
2. Paying off balances on time (credit card or mortgage) and consistently
3. Number of credit enquiries – high is bad
4. Paying bills on time – consistently

My credit score is 826. I just used common sense …and then read an expert’s column on credit scores – and found an uncanny coincidence :) The only thing that I learnt from the column was #1, #1.5 and #3.
So why do I have 2 or 3 credit cards? Use the rewards to generate cash back and buy essentials (not luxuries) using rewards points. Ofcourse, I use credit cards for ‘necessary expenses’ .

Advice to my 19 year old self:
Don’t romanticize your decision making process. In hindsight I have done this buying cars and motorcycles, starting business, so many things. But the romanticizing part of my brain always jumps forward to the point that that POS Triumph would be fully restored or I would have a full staff of people. My financial analysis skills have always been reasonably solid, but I underestimate the unhappiness costs because of the romanticizing. However, that led to a lot of transaction experience, which I agree are important.

Interesting thought. My advice to 19 yo self: pick a major that will get you a job that’s readily available, and work your ass off to graduate in a reasonable amount of time, with an internship under your belt. Don’t worry so much about the min. wage jobs, in the meantime. They’re just a distraction (for me personally).

Ah the ol’ sunk cost fallacy. It’s a basic human instinct. This video explains:http://www.wimp.com/costsfallacy/
The real nugget in this article though is that transactions are good for you! I just flipped a car on Craigslist netting $1800. I feel like I could do this all the time… very empowering. I get the same feeling with refinancing, credit card churning, ebaying, etc… Every time you transact you get bolder to do another!

Great food for thought. The days of staying at the same job for 5 years seem long gone, at least for me. So, I’m working towards being able to work from home, and cut our commuting costs that way. I love our community, so I don’t want to change that — I just want to change getting in my car and driving to get there.

As for the cars, well, I would definitely buy our 99 Corolla and 06 Prius again! We’ll need a little more space in order to get to our vacation spot this summer, so we’re planning to swap cars with my parents. We’ll use their minivan for the baby gates, pack n play, and stroller that would otherwise be too big for either car. They’ll use our Prius, and maybe it will convince them to convert to a more economical car.

Having kids use their car for vacations with the grandbabies will be all the justification they need to keep the large car. We’ve done multiple 2 weeks plus roadtrips in our Nissan Versa with 2 kids. With creative packing, you can make it work. We also do laundry multiple times on the trip to lesson the luggage. But take all the underwear you can….it’s small and if you need it, you are happy to have it.

My husband and I love our 2010 Nissan Versa four door sedan (I do not like the reduced headroom or funky seats in the newer models) and have taken it on numerous road trips (just the two of us, since our kids are grown and living on their own). For a small car, it has a surprisingly large trunk. My husband teases me about how I am the only one who can load the car because everything has to go in a certain way, i.e., my version of “creative packing”. I agree with planning on doing laundry at some point in order to reduce the amount of clothing needing to be packed. But is is a travel truism to “take all the underwear you can….it’s small and if you need it, you are happy to have it”! LOL

The choices we make can have an impact later, some choices are obvious but others are not so cut and dry. Some choices have a certain level of risk, and that risk can benefit us or not. Its up to you to decide what will really push you forward in a good financial standing later or towards bad financial outcomes. Like for example the whole renting or buying a house debate. In one hand you can save on monthly costs by renting, but on the other you can lose money because your not building equity. (ITs all a risk and you have to decide what avenue to take)

Ha, boats. They says the two best times are the day you buy it and the day you sell it. I can assure you, the day you sell it is far FAR better.
Just sold ours (admittedly got it very cheap a few years back), but with ongoing downscaling we decided that two outings a year couldn’t justify it taking up the garage space. Decided to sell. After about a hundred tyre kickers making empty promises we got a sale. With each sale falling through, once people twigged we lived in a remote part of the UK, anxiety levels to get rid were mounting, baby on the way, could do with the money stashed in a passive fund rather than rubber. The morning it was being picked up turned out to be the most stressful of my life (nearly…maybe finals were slightly more stressful).
Foolishly about half an hour before it was due to be picked up we thought we better give it a run through (having said to my husband the night before ‘should we check the boat now?’ and his assurances of ‘it’s fine it starts first time every time we’ll do it in the morning’), got the fuel bladder in, primed up, water muffs on, bit of choke, pull the pull cord……cable snaps. SH********T, I see the sale disappearing before my eyes. With a practicality I’d never known before (what’s the say…necessity is the mother of invention’?) my husband and I got it fixed, fortunately his experience with chainsaws meant he knew how to tension the cable. Anyway long story short, two attempts later had it fixed, luckily the chap coming was held up and as he drives up the drve, get it started and sale is done.
Til five minutes after he’s left when he rings up and says the wheel has fallen of the trailer. F**%%&KKKK, turn out he meant tyre, easily fixed, and it’s gone….joy.
The lesson here is I will never NEVEr own another boat or any non self propelled toys. Too much stress and hassle

Even worse than buying a boat is having a family member “gift” you half of one while selling the other half to someone else.
Times we used the boat: 2
Times the other guy used the boat: 100
Times we got a phone call at night telling us about how we needed to pay our half of some repair or replacement: 100
Best day of my life: the day I convinced the husband to “gift” the other guy our half of the boat.

I hear you there! Although difficult to see the “height” of the housing market, I would not have bought with an FHA loan with nothing down! I had to move just 2 years later and would have been in a much better position having 20% equity and no PMI! In your case having the extra debt certainly makes it worse!

That’s exactly what we did too. Fixer upper, with no money to fix up, 0% down FHA with PMI. The difference was.. i work in a bank and i did actually know the market was inflated at the time but we saw built-in corner cabinets, hardwood floors and a beautiful looking fireplace and got swepted away. At least we bought a small place that was close to work so it wasn’t a total loss.

One thing I’m uncomfortable is people talking about past things like they were a mistake. Sure perhaps you wish you’d done something differently, but you likely learned from those “mistakes” and you will be a better person in the future. The best thing you can do is learn from other people’s “mistakes” but analyze them to decide if they are really mistakes or if the person has some other bias against it. That being said, there are some mistakes that not everyone has to go through in their life, like divorce. You should be able to reasonably avoid that one! An example is buying a new car, it wasn’t a grave mistake, it was a bit of a set back to your finances, but overall if you enjoyed it you shouldn’t be too upset about it.
You can remember fondly the past and excitedly anticipate the future but you can only ever be in the present. Make the most of this moment.

So true. I took out a huge amount of student debt for school (mostly at the grad level, but still).

A lot of people would consider this to be a huge mistake, but I consider myself very lucky to have had this debt. It scared me, to the point that I started obsessively reading finance blogs. They led me to make very different life choices than others around me, which enabled me to pay off all of the not-super-low-interest student loans I had, within just 5 years.

My problem when I was 19 was less of a spending problem and more of an earning problem. My husband and I lived on a very low income for about 10 years or so, and while we did manage to stay out of debt and put a little bit of money into savings, the progress we made was nothing compared to what’s happened since our income went up.

But I’m not sure that our income could have gone up the way back then that it has now, as both of our jobs are directly or indirectly related to the internet (and I was 19 back in 1997, so the internet wasn’t what it is now!).

thanks for this reminder! I did a mental inventory and discovered that we’ve already done these things. For instance, our commute is zero feet because I telework. This was not luck, but deliberately planned and pursued. We have a McMansion that we ourselves general contracted. That saved us about $1/4 million right there. We designed it so it would be part of the sharing economy and it generates rental cashflow equivalent to the morgage, while also providing tax benefits. This rental income has been banging away at the mortgage principal – which will be gone next year. Here’s a couple tips I’ve found useful on our financial road.

1.) The Black Jellybean theory of economics. When I was 5 years old, my mom frequently visited an older kindly couple. They always had a bowl of jellybeans for the kids..it would start off full of various colors/flavors but over time the selections would be reduced to black jellybeans haunting the bottom of the bowl…and then these would just sit there for weeks until they’d be thrown out, and the process would start over. Even at that age I learned this lesson…if you LIKE things like black jellybeans people will be glad to just shove them at you. How to apply this? When Consumer’s Reports stated in 1985 that Suzuki Samurai’s would flip over in a light breeze, this formerly hot demand car selling for $15k was overnight turned into a pariah. Six months later I bought one nearly new for $6,000 cash. It lasted for 17 years with near zero maintenance and I still miss it. Recently I bought a custom coach bodied limited edition AMG Mercedes Roadster. What!!! How could that be a black jelly bean?! It was the disavowed love child of the Daimler-Chrysler merger, the Chrysler Crossfire SRT6 Roadster…which was entirely built in Germany by Karmann and Mercedes but sold with the Chrysler branding. Instead of paying $25,000 for the equivalent car with Mercedes badging I paid $13,500. Nobody wants them or has even heard of these cars. It’s goshall fun and has the Sky above and more G forces than you can shake a stick at. This car truly quantifies the “value” of a badge/branding.

But…why do I tolerate such profligacy? Because it provides joy for me that doesn’t wear out, and I use it for FUN! And did I mention it’s cheap? P.s. I do all my own work on it…

So that’s the second tip. Never buy stuff to which you will hedonically adapt. Instead find those things which bring Joy with consistency. Joy here is defined as…it promotes peace, it brings happiness and promotes an expectation of goodness in the future (aka optimism).

Think of debt to include Time and diverted attention, not just money. This is why I’ve never had a boat, snowmobile, timeshare, external rental house etc. they steal my time and attention…money I can get…time I can’t (yet). In practical terms, when we built our house, we decided to pursue a zero maintenance strategy, such as selecting white composite materials for all exposed exterior surfaces. Now that the house is ten years old, we’ve never had to paint it, and never will in my lifetime. Trex decking means no refinishing, resurfacing ever. A large front driveway and a forest in the back reduces the grass footprint to near nothing etc. etc.

I can’t think of any off the top of my head, and none were as extreme as your examples, but yes, I do tend to want what others don’t want, or not want at all what others do want.

Well, maybe here’s kind of one. In my country, there is a so-called housing crisis, as purchase prices have risen much faster than the CPI over the past 7-10 years (and prices weren’t that great back then, either). The problem is, many if not most people want to purchase property either to live in or for investment purposes, even though it’s a poor investment by any objective standard.

I’m on a “Living Financially Smarter in this country” Facebook group, and even for members of this group, it seems most families make what for most of them is the most important financial decision of their lives according to non-financial factors. These same people also might even explain their decision in financial terms, for example, “Renting is a waste of money”. My response: “Not if it means I can keep most of my net worth liquid, mobile, and diversified, and earn healthy returns, idiot…”

Where I live, the black jelly beans are houses without parking, because so few people realize how walk-able my town is. Saving at least $50K on my house and god knows how much more by not owning a car is what’s knocking years off my estimated retirement date.

This is a hard concept for people to understand. We have worked hard the last few years to try and avoid the memberships, timeshares, etc that others are saying are good investments. To me the only timeshare that is a good investment is the free gift or boatload or hotel points they give you for attending the presentation!

A timeshare is not an investment. It is a stone around your neck for which you overpaid and for which you will pay ever-increasing fees for the rest of your life. And it is nearly impossible to get rid of it — people sell them for $1 on the resale market.
As a CPA I have heard all of the arguments about how they are an “investment”…really? How?
The only people that benefit from timeshares are the companies that are providing the financing at ungodly rates.
Here’s the irony…you can rent those places like regular hotel rooms and pay much less than any timeshare owner. In fact my favorite hotel is actually a Hilton Grand Vacations Club timeshare hotel in Las Vegas. I can stay there for free on Hilton Honors points that I earn on my credit card. No ownership required! No annual fee! No maintenance fee or housekeeping fee or reservations fee!
If anyone has figured out how to efficiently give a timeshare back to the company without paying off the balance due, let me know. I’ve got clients who cry to me about how they still owe $8,000 on a timeshare they have never used.

This guy made his fortune selling timeshares to other people http://bit.ly/1H0FPF6. He is dismissive of them but he knows his wealth is generated by easy access to credit by the unsuspecting middle class. Of course, he did declare bankruptcy too while he was building a replica of the Palace of Versailles to live in. He must be an expert on bad investments by now.

He’s back, actually. He bought the old Las Vegas Hilton. I shudder when I see the name Westgate on the sign. It’s only fair, I guess, since Hilton bought his former LV hotel when he couldn’t get his financing in order.

Ugh – do the words “time share” have the same shudder inducing effect on anyone else here? Not one – but TWO – because my hubs thought they were great deals back in our youth. Now, several years later, not wanting to spend (waste?) the money on plane tickets, dragging the kids around, and extensive traveling, we don’t use them – and we can’t find anyone as naive (crazy?) as we were to buy them from us at a price my husband thinks is reasonable. Based on the yearly fees – I would just abandon them or sell them off at a huge loss – just to be done with them. We aren’t using them – so we pay yearly fees for NOTHING. My husband thinks we will eventually make our money back – I think he’s insane… One of the many places my non-mustacian husband and I don’t see eye-to-eye…

OY! My mother passed away about 2 years ago and left my brother and I saddled with a time share in Texas. She bought the thing 30-some-odd years ago for around $7K and today similar units are selling for around $650. Yup, you read that right. The annual maintenance fees are around $700 so the thing is NOT an asset, it’s a liability. Problem is, we can’t get rid of the thing. We can’t sell it, and as yet haven’t figured out a way to walk away from it. We’ve got an attorney looking into it for us, and with any luck we may be able to “donate” the thing to charity (which feels like a scam to me, since it’s not worth anything, but at this point I’ll do anything to get out from under it.) Seriously, we’re probably gonna end up incurring thousands of dollars in legal fees from probate lawyers in several states just to get rid of the thing.

The worst part is that my mom bought it as an “investment” and I think she only used it once or twice over all those years. Anyhow, I would strongly encourage you to push a bit harder on your husband to get rid of the things for the sake of your children if nothing else!

EcoCatLady – I won’t say with whom or where, but I was able to negotiate a trade with the HOA/Developer on behalf of my grandparents. It was basically this: We give you the title to the property, you release us from all claims, obligations, etc. related to it. They agreed. You might try that approach.

Thanks Kandice! It’s good to hear that someone has actually had success this way. I keep telling my brother that we should contact the resort and see if we can’t just deed it back to them, but he doesn’t seem to think it’s something that can be done, and hasn’t been willing to ask them. Since he’s the estate administrator, I don’t have authority to do anything. But it helps to know that it can be done! Maybe that knowledge will be enough to push him into making a phone call. :-)

In many states, a beneficiary is able to refuse or decline a request. You might not have to take that property at all. Who wants a bill? Estate law is local by US state, so you would almost certainly need a lawyer in the state where the estate is to sort it out. Good luck.

I hate it when people say they have no rights/control in estate matters . This is wrong. You may not be the administrator/executor of the estate, but you are a beneficiary. As such, YOU HAVE RIGHTS. You do not have to accept any debt or obligations of your deceased parent. You do not have to keep or pay for any liabilities created by a deceased parent. Hopefully you and your brother are in agreement on the estate, but if not please get your own attorney and/or legal advice.

EcoCatLady: you can walk away from an inherited time share with no liability. It will eventually be sold at county tax sale (time shares are unsecured property but are sold for past due property taxes per state law). I’m pretty sure tax sales in TX are non-judicial, so there won’t even be a court case naming you or your deceased parent. DO NOT probate your mother’s estate in TX in order to transfer this property. There us no legal requirement to probate and transfer property that you do not want to own. Let the estate take the “credit” hit, if any. Confirm with an attorney. But please ……. Let it go!

I have a huge advantage since I discovered your blog at age 21 (I’m 24 now). You helped me make all my important decisions- getting a good car, deciding to rent instead of buy a house, maxing out my 401k and Roth…. so, in answer to your question, I wouldn’t change much financially-wise.

I feel so lucky that at 22 I haven’t had a lot of time to make huge mistakes like buying an overpriced house, getting into CC debt, or financing a luxury SUV. In fact, I’ve never had any debt of any sort, and it’ll stay that way until I buy a foreclosure during the next housing crash (I can wait, I’m in no rush to stop renting). The whole concept of buying something and then hoping you get the money for it later never made sense to me. Still, I think of all the money I’ve wasted on (cheap, used, but expensive to run) cars and car projects and how much better off I would be if I hadn’t. Fortunately those mistakes are all long sold.

I’m only 20 and my only debt is a few student loans (I’m paying them off currently) but I totally agree with you on the car related mistakes, luckily I just sold my final car mistake last week for $300 profit no less. I can’t wait until I don’t have to drive anywhere!

I think the analysis would be different if the real estate investor was a salaried employee. The costs of homeowners insurance, property taxes and HOA fees would all be income tax writeoffs against rental income. In contrast, as soon as you take money out of your Vanguard account, you are subject to capital gains tax.

The analysis would also be different if the real estate investor owns the investment property outright compared to the investor with a mortgage. Regardless of whether you put 20% down or whether you buy a property for cash or have paid off the mortgage, you realize the same amount of appreciation on the property. When a property increases in value from, say, $450K to $650K, the investor realizes the same $200K gain regardless of his equity. That $200K in appreciation looks a whole lot better if you only put $90K down.

MMM also compares S&P500 reinvesting dividend but doesn’t make the calculation for reinvesting rent into the market (the effect is small, $70k additional earnings if he pays tax ad HOA out of rent), but that’s beside the point.

Real estate is often magnified because most people leverage up with mortgages (although the pain is magnified if you hit a housing market crash if you don’t have real money to back up the mortgage of course).

And I hadn’t thought about the effect of re-investing the rent. To make it a fair comparison I should have done it that way (even though in real life I used the rent checks to buy my own groceries).

Our situation is kind of good: me relocated internationally at the end of 2014, and used the opportunity to get rid of lots of the clutter. I don’t think there’s anything in our condo that we don’t use. We also calculated, as part of our relocation, that the total amount of “stuff” we own is approximately worth $30’000. (With the two most expensive bits being my DVD/Blu ray collection estimated at $5’000, and our bed at $2’000). At this point, there’s not much we own that we don”t actually need.

“Most of us make far too few transactions, and this lack of experience keeps us in fear, so we avoid them even more with each passing year. Your skill and comfort with life transactions is reflected directly in your wealth and the quality of your life.”

Wow, as usual MMM you have said something profound/brilliant in your post. This statement could be incorporated into some kind of 10 commandments for life, I love it!

This hits home for me in some ways. I fell like a sucker for the “American Dream” and bought too much housing in 2008 for what I felt was a good deal at that time. FF to 2 years later and I found myself questioning if the big house and two cars in the garage along with the accumulating junk were bringing me any happiness. I started to question every thing and after I realized that about 5 things were bringing happiness to my life and they weren’t material possessions, I started getting rid of the rest. I paid off the Camry, turned my rental property into a 2 family home, moved to the 3rd floor and got rid of the big house. I don’t mention this often but I was also unhappily married and decided to divorce since it was easier as there werent’ any children. Our debt pile was so ugly that my divorce lawyer even adviced me to file for bankruptcy. I didn’t and dug myself out by paying off all the debt. That was in 2011. 4 years later, I’m happily remarried, debt free and about 3 years away from becoming financially independent. Thanks MMM for showing us that early retirement is so freaking possible. I’ve been a passionate reader of this blog since my wife and I started our FI journey. MMM, thank you for taking your time to show us a light.

This is great article and hits home for us. This past year we have been removing things from our life from past poor choices and just stuff that is not necessary. We have sold 2 cars, a rental that was upside with the mortgage and anything in our house that is not nailed down. This has been a very freeing feeling and has reduced a ton of stress. Great blog…keep the article coming!

One of our cars is an ’06 Pontiac Grand Prix that gets 23 mpg. The vehicle is paid off and blue books for about $5,600. I wouldn’t purchase this car again, but doing a quick craigslist search anything more fuel efficient that doesn’t have $200K miles is going to be $5,000-$8,000.

How do I justify selling our current car and buying something more fuel efficient if it is going to cost more to purchase plus sales tax?

Based on previous discussions, I was considering selling my 2003 Malibu with 250K miles. You just reminded me about the Honda Fit which should get better gas mileage and still be able to carry most of the stuff I occasionally need. Here are some local Craigslist ads

My current car is probably worth less than $2000. It would take me maybe 5-6 months to save up for the more expensive in this list, so I won’t be able to get one anytime soon. But do these seem like decent examples of vehicles? Thanks!

Keep up the great research, Eldred! Other readers are welcome to chime in on the research, but in general the car dealers posting on Craigslist have prices quite bit above reality. So I either negotiate them way down or buy from a private seller at the Edmunds used car appraised price.

You said it yourself. If it takes several years, it may or may not be worth it. You need to compare how much are you going to use it, vs. what can that money gain for you meanwhile. In general, I would say no. Buy used, maintain well, use seldom, either sell well in a few years or run it into the ground. If you haven’t recouped in three years, I’d say it’s not worth it.

I was just thinking similarly about my 2010 Subaru Liberty. I bought it last year used for $14,000. Would I buy it today? No, I would rather spend $6000 – $8000 on a small sedan. BUT if I sell my car now, I would probably only get $7000 – $8000 for it. SO I will vow to hold onto it for a very very long time. Also, it’s so so fun to drive and quite fuel efficient so I shouldn’t be too concerned.
(these prices are in Aussie dollar so might not make much sense)

That is a great question and quite relevant to what we’re talking about here.

If stocks were truly and obviously overvalued (for example, if the S&P were to rise by 1000% overnight with no accompanying change in company earnings), I would indeed sell them and just hold something like the Vanguard REIT fund and happily take a 5% yield forever (equivalent to a permanent 50% yield on my portfolio today – I’d be filthy rich!).

You might get lucky, or we might get another 12-year period like 1995-2007 with higher valuations, continued dividends, and earnings eventually catching up to stocks – where you never end up catching stocks at a lower dollars-per-share price.

Market timing is almost impossible to do profitably in real life. In hypothetical situations like my 1000% rise, sure.. but it is never all that clear.

MMM, we’re practically back to where we were in 2008 on the PE10: http://www.multpl.com/shiller-pe/. I am trying to avoid complainy pants syndrome. I’ll bet you a beer that your return 3-5 years out will be no greater than 3%. Let me know if you’ll take me up on the offer?
Also, I didn’t appreciate how many comments you read after writing your blog. My hat is off to you.

Great thought, Brett – I think your prediction is quite reasonable: you’ll get the 2% dividend plus a bit of baseline economic growth each year (3%?).. but the P/E ratio is very unlikely to stay higher than this for a long time, and very likely to revert towards the mean.

In other words, 3% is a good guess unless we get more bubbly P/E expansion. Which still doesn’t get you anywhere, because it just increases the chance and severity of future falls. In the long run, stock investment returns depend on real earnings and real dividends.

Another awesome article and lesson. I have had similar hind-sight epiphanies when my bullheadedness had me hold onto things rather than sell them and move on. Your article has inspired me to list and sell some vacant land I own, move on, and put whatever money I get to work somewhere else.

Huh, this is a really good article. I must admit that I struggle with this a bit on the house aspect.

When we bought our house, it was sort of mid-way between our jobs. So I could bike the 10 miles to work a couple of days per week, and spouse could bike to work 5 miles, 3x a week.

Fast forward 11 years, 2 new jobs, and 2 kids later, and we almost never bike (as a 2-career, commuting couple with 2 kids in 2 different schools/ cares). What’s bad is that we literally work one block from each other (which did help us bike commute for awhile, we would each bike one way). Even worse, our chosen child care is 5 miles in the wrong direction, so we each put in about 30 miles a day. Ugh.

So I struggle with the house thing. At current crazy So-Cal prices (still less than we paid), we could sell our current 2BR/1BA house and buy a 3BR/2BA house near work for approximately the same amount of money (would probably need to bring about $25k to the table). The area near work is “newer” (think 60’s and 70’s), so the smallest available single family home is a 3/2. (Where we live now, houses were built in the 20’s and 40’s, hence the smaller homes).

On paper, it’s totally the right thing to do. Buy a new house, sell the old one, change child care (which will happen in a year anyway when it’s time for preschool). That will cost probably $40,000 in house selling fees, but we will make that up later, right?

But the emotional side is much harder. I love my little house. I don’t love the little-ness of it, the single bathroom, and the fact that we have no garage, but it’s my first home and we’ve put so much work into it. I also love our neighborhood. I don’t love the traffic (it only takes a few bad apples speeding down the street to ruin it). I like our school. My older son has friends in the neighborhood, our neighborhood has weekly pot lucks in the park (it took us about 9 years to meet this group), and we can literally walk to the beach (it’s about 1.25 miles). It sounds so hard to start over in finding this kind of group, considering how long it took us to get here.

Maybe the answer is waiting until our older son is ready for junior high and the younger goes to first grade, so it’s not such a shock to change schools? But still the neighborhood – I have found it very hard to get a good group of local friends. It’s not so easy out here. I’m not sure I want to lose that. I am a fairly social person at heart.

I’d be excited to make that move ASAP if it were me, Marcia! You could keep up with old friends with a lot less than 60 miles a day of driving. A very personal choice though – I hate commuting much more than most people do.

I agree with you about the social dynamics of moving. It is hard to put a number value on community, which is very hard to find in this day and age. If your hair isn’t on fire and the commute isn’t killing you, I would wait until a natural transition time, like when you are close to switching schools for the kids (oldest goes to middle school, youngest goes to preschool).

From the aspect of you older child, I would rather go to junior high knowing at least one other person (from elementary). Also, switching before everyone hits puberty has great benefits. Guys are definitely different, though.

Entering junior high is pretty much a universally agreed upon bad time/age to change anything for most kids in our culture. Talk to your friends with older kids. Talk to anyone whose family moved/changed schools when they were 12-15. I think you’ll get more than an earful on that topic, most if it pretty scathingly negative. If you know you want to make a move…..do it now. And MMM is right. Work commutes are killer compared to play date, sleepover and pot luck commutes.

Keep in mind that just because you stay, it doesn’t mean your friends will. We have had terrific neighbors the past 5-6 years — the kind that have potlucks, who watch each others’ kids, etc. — and in the last 4 months, 4 of the 9 families on our cul-de-sac have purchased new homes and have either already moved or are moving soon.
I agree, it can be tough to create those new social circles, but remember you aren’t completely leaving these folks forever (you aren’t considering a move that far), and the chance to create new friendships and connections is also valuable.
(And I have to say – I came upon this blog just in time. I was watching these friends buy bigger homes further away from our city center, meaning LONGER commutes, and feeling twinges of jealousy. MMM has reminded me what our family values are, including more time together and less time commuting, so that those twinges can be stamped out.)

I feel like this advice applies to jobs too. Most people settle into a job and sort of… seem to forget that there are other options (and then panic when the thought of a layoff occurs, and they have no idea of their market value, and their entire income is depenant on once source… bad all around.) “But I’ve been here 5 years!” “But there’s no risk here!” “But I’m settled and comfortable (and stagnating)!” It’s not because you’ve sunk 5 years into a specific company that the right move for the next 5 years is staying there! Evaluate your options!!

I’m a big fan of sending out resumes and interviewing around at LEAST once a year, ideally every few months. Firstly, because you never know when an amazing opportunity might be offered if you’re not looking (personal experience: I was randomly looking “to see what’s out there”, and got a job offer for a better position at 150% the salary I had been making. I wouldn’t have been offered that if I had been contentedly sitting on my tush and working my job like a good little corporate drone.) Secondly, because if things DO go south for some reason at your current job (layoffs, or new horrible management, or a complete job description change that makes you hate your work) you have other options and other contacts and a significant leg up from where you would be otherwise.

You shouldn’t leave a job you’re happy with if you don’t want to, obviously (even when you’re financially indepenant, if you like your job, no one is making you leave.) Be honest, though: are you absolutely certain you wouldn’t be offered a job making 20K more at another company? Or with better working conditions? How are you gonna know what your options are if you put your work life into a box, never ask for outside input, and hand it gift-wrapped to your current employer?

This is *also* a very good point. I have a tendency to “stay” places.
Job #1: Navy, 5 years, left when my time was up
Job #2: Manufacturing, 2.5 years, left when the company went out of business
Job #3: R&D, 8.5 years, left when my job was eliminated and I wasn’t interested in the alternative they gave me
Job #4: R&D/ Manufacturing, almost 7 years now.

But I’ve been looking for a new job … Not very hard. I’ve sent out maybe 5 resumes, had 2 job interviews, and one offer. The job I really wanted I didn’t get (and they didn’t fill the position). The offer I got was a place I’d never want to work. But I didn’t know that until I interviewed.

Part of this is age, too. I have a lot of friends from that manufacturing job who are *still* in the same place that they have been for 15 years. Why is that, I wonder:
1. They are moving up and being paid fairly
2. Their financial needs are lower because they didn’t pay $750,000 for a house
3. They are unable to get a new job due to age-ism

The fact is, there aren’t a lot of jobs for what I do in my area. Probably only 2 big companies and 4 or 5 small ones. It’s a small town. (And I’m not moving). Added to that – I’m in my 40’s, and while I am paid about $20-30k under market for my level of expertise and experience, I’m still not cheap. Plus, you know: kids. I need flexibility for the kids – if it’s a job that expects 50 hours a week, I can’t do it.

I wonder if my friends in their 50’s are just “hunkering down” and holding on the the job they have because it’s hard to get a new one?

That said, I still look, occasionally. If I see an opening that looks interesting, I submit my resume. If my friends in town hear of something, they let me know, and I submit my resume. I agree that interviewing is an important skill. I took 3 days off work last year to prepare for, and attend, the interview for the job that I didn’t get. I was sad to lose those days off, but it was a good experience overall.

+1 on that approach. It’s amazing how far I’ve gotten by changing jobs and even organizations and moving up each time every 3-4 years max. I stayed in one job 6 years and it was a rut that didn’t end well. I think that not growing super deep roots in any one work place will help me pull the plug on the whole career in a few years, too, versus becoming caught in the common One More Year syndrome. So many people seem stuck in their job in different ways..

That is a great idea, sending out resumes & interviewing often.
I was settled in a role for 2 years and then the place went south due to management restructuring. I started applying for other jobs and was pleasantly suprised that companies were willing to offer me 15-20K more for the exact same role. So I chopped and changed, while a year later my old colleagues are still miserable and struggling.

Ahhh, cognitive biases. I’ve been studying these recently and am convinced that we’d all be a lot better off if we all knew about them. Understanding them will provide you with an incredible tool for seeing how advertisers, salesmen and others manipulate you. Poor Charlie’s Almanack, a book Warren Buffett’s sidekick Charlie Munger, has an excellent section on them. I strongly suggest you boogey on down to the local library and check out a copy.

It is hard to count the number of mistakes that I have made over the years. I guess if I had to pick one, it was buying homes when I was moving about every 3 years or so. I bought into the myth: “if you rent your are just throwing your money down the drain”.

The transaction costs and the fickleness of the market were seldom in my favor. I most cases, I would have been better off renting until we knew we would settle long term in an area.

I love that in the course of reading through all the blog articles your fans can catch a glimpse of learning and growing out of hindsight lessons alongside the rest of us.

Maybe there’s a reason I’m too lazy to get extremely in-the-weeds with pro and con mathematical analyses of things like costs for big ticket transactions or one tax aversion strategy over another. It’s good to be mindful of all those considerations when making such decisions, but Churchill once said perfectionism is paralysis, and there’s nothing more paralyzing than keeping yourself from unloading a financial and psychological dead weight.

I have two things that I puzzle over. One I KNOW was a bad decision, but the time to reverse it seems like “not yet.” The other is more confusing.

We bought a 2013 Nissan Frontier and a cab-over camper brand new 3 summers ago. Paid cash, about $45K total. To our credit, we have used it for some huge trips, regularly take it places that one could simply not go with a low-clearance vehicle (trust me on this– it was sketchy in the rig), and have slept in it well over 150 nights in three summers so far. It takes us on trips that (weather-wise) would not be appealing if we were sleeping in tents and cooking in the rain. On the downside, you can do the math on the “per night” cost. I know we should get out of it, but I’m waiting for that sweet spot when the kid outgrows the bunk and/or my back won’t let me climb up top any more– probably another decade. I can see MMM’s logic, and had I been a reader prior to the purchase we might not have made it, AND there will come a time to pull the trigger.

The other is harder to do the math on. We have a rental worth about $200K (purchased for $130K in 2002 but probably $180K once the interest on the paid-off mortage was paid too), that brings in $14000 a year in rent. We live in a rental market where we can pick and choose tenants, and the house so far has been low maintenance. After taxes and maintenance we clear about $10K a year. That’s a solid 5% return, and while MMM claims I could do better, I look into the future and hesitate to put that $200K (less, as I would have to pay capital gains tax on a considerable portion of the sale) into the market. I will have a harder time letting go of the rental.

On the other hand, this philosophy aligns very well with Marie Kondo’s “Japanese Art of Tidying Up” in which if something doesn’t thrill you, thank it for its role in your life and let it go. She focuses on the smaller objects of life, while MMM is addressing those bigger purchases. thanks for the food for thought!

I’m really struggling with a car purchase decision. For the past 5 years, we’ve been using YNAB and reading financial blogs. We’ve made all kinds of great financial choices… so much so, it’s gotten hard for us to spend. We have a two-door Honda Civic… we got a great deal and the gas mileage was good. My husband has to drive 4 hours twice a month to pickup his daughter for visitation, and it makes his hip and back ache every time. Our family of four can’t fit in it together (three of us are over 6′). We do a lot of camping and road trips, and we’re doing less and less because of the vehicle.

I’m not a real ‘car’ person and I’ve never fallen in love with a car… before now. I really want a Subaru Outback, and I really like all the changes to the 2015 Outback. For the first time, I’m VERY tempted to buy something other than the cheapest/best deal. I normally keep cars 10 years (but have only had the Civic for 6). No debt. Exceeding our goals to retire at 55 (we’re 41). In Vanguard Index funds. Mortgage at 2.75%. So, overall, I think we’re in great shape other than if we already didn’t have a mortgage. Basically, I just want to buy the freakin’ car, and I know that no financial blog will ever tell me I should do it. It’s the first time in 5 years I plan to buy something in direct contrast with what is the ‘right’ thing to do. We can pay cash or keep it invested and get a 1.49% rate. My plan is to just use the cash. I guess I’m just throwing this out there to see… is it EVER ok to just make a less than optimum financial decision? Is the financial reason the ONLY reason that matters? I don’t think this is a frivolous purchase… I consider the pleasure of this purchase for our family an important factor.

So you want to upgrade your almost-brand-new 2009 Civic for an even-more-brand-new 2015 Subaru Outback SUV? What about just a roomier 2009-or-older 5-door hatchback? The Honda Fit is a great one for you, too. Or a 2010 Prius. Or check out a 2013 Ford c-max hybrid – super spacious almost-minivan wagon, which gets over 45MPG.

To save even more, look at a 2008 Scion xB – also massively spacious passenger area, one of the most reliable cars on the market, and only about $7,000 on the used market.

Brand-new cars will blow a pretty big unnecessary hole in your budget for anyone who still has to work for a living. I’d only consider them as an indulgence for retired millionaires, and only if accompanied by making fun of yourself for at least a year before and after the purchase.

Running the numbers on my used 2005 Prius versus my wife’s 2014 plug-in Prius yields a difference of ~$.06/mile, which is an extra ~$50/month (assuming a 200k lifespan and 10k miles/year for both cars). It’s definitely something, and not my cup of tea, but I wouldn’t consider it a retired millionaire something.

{wince} Sorry, but this advice reminds me of a thing that put me off Suzie Orman for life. Some woman called, asking for advice on inheriting $10,000. She wanted to put half away for retirement, and use the other half for a cruise with her husband; (they were in their late 30s or early 40s, as I remember). Orman, of course jumped up and down and yelled that “ALL that money HAD to go towards retirement! They could cruise when they retired!”

I SO SO SO disagree!! I’m currently 59, my beloved husband died suddenly of a heat-stroke-related heart attack at age 60 in 2011. We cruised once every year of our 16-year marriage (no other vacations or frivolous spending — that was our big ‘blow-out’ every year). And now he is dead. I could not EVER make the joyous amazing memories I have of cruising with the love of my life “when we retire”: cause we don’t get to retire. I struggled mightily financially (and every way) when he died. (We had not prepared as well as we thought we had.) I do not regret ONE SINGLE sleepless night worrying about losing the house (which I managed not to) or trying to figure out how to carry on his manufacturing biz (which I did) and ‘right my financial boat’ (which I have).

Early retirement and frugality and making the best use of money and all is great — and it’s the reason I’m reading and taking notes at this great blog (among others) — but there needs to be a balance too. “SeekingBalance” sounds as if she has everything in line; they’re nearly to early retirement; they’re ‘making do’ with a WAY less-than-optimal car and thus avoiding some of the JOY that is the entire purpose of making money. Judging from her comment, she is not going to use the purchase of a vehicle she really really wants, and one that will serve her and her family well (and for ten years she writes) to ‘open the flood gates’ to insane purchasing…. I ‘hear’ her asking for absolution for ‘breaking the religious rules’ — and you acting as her priest and telling her to go forth and sin no more! We earn money to have a good life. We work to retire early and build up an amazing cushion to have a good life. Please do not entirely put off that good life as a goal for “old (or middle!) age” — cause you MAY NOT GET THERE.

Can you imagine how I would feel if we had “put off” cruising until Michael retired?! If we had saved that money for our future lives together? If we skimped and saved and lived tight so we could benefit later? In my case — there is no later. I can revel in the amazing times we had, the things we saw, the pleasure and joy we shared, and the friends we made in our cruises. Please never lose sight of the goal here: a GREAT life not just someday, but also TOday! If you’re counting out squares of toilet paper to save $0.16 a week — instead of spending time — and yes, sometimes money — on joy with your family; then you’re making a mistake.

Don’t get so caught up in a number: retire at 30 (instead of 32?) Have $1.7million, instead of $1.6million? Live uncomfortably but proudly (?!) in a super small house? that you forget to live NOW too! I doubt anyone who reads this blog is going to decide to blow all their work and money frivolously — but some of them may be getting caught up in pursuing the numbers instead of the dream! NOT just retiring early — but having a good life, even if that means retiring two years later!

I’ve said this to everyone I know — thankfully I DID act on it with Michael: DON’T waste time! Don’t think, “I can spend time with him or show how much I love him later” — there may not be a later! Here’s to balance: REAL balance, not just financial balance and the rest comes after!!

Elenor, I am sorry to hear about your sad loss. And I am glad to hear you made good memories while you could. But you are implicitly making the BIGGEST mistake that I speak out against with the whole existence of this blog: confusing more spending on luxuries with achieving a better life.

For example, you could have created equally good memories with your husband doing something other than sitting on a cruise ship. Given a different background, camping trips in amazing natural areas bring many of us much more satisfaction (and health too).

In the example of the new car purchase, here SeekingBalance was considering buying a BRAND NEW CAR to compensate for a shortage of space in her poorly designed nearly-new Civic Coupe (why the hell does anyone make/buy 2-door cars in the first place!?).

I was suggesting just trading over to another nearly-new car with a better passenger-friendly design for a zero dollar cost, rather than throwing $15,000 extra onto the bonfire for a pointless extra bit of newness, when they obviously have other uses for money as well.

That’s just a strategic decision on choosing a lifestyle tool without wasting too much money on getting the job done. Don’t confuse that with an existential happiness issue.

This chain is oddly applicable. I purchased a 2015 Outback earlier this year and I would do it again (in the spirit of the article). There have been many instances, even in less than a year of ownership, that I’ve been very happy to have its versatility that I didn’t find in other models. As far as SUVs go, I think that the Subaru models are the best value. I totaled my last vehicle (black ice) and so I didn’t have time to search for the right used model.

I appreciate both positions, and figuring out what “happiness” means to YOU is critical before justifying a large purchase like this. I also don’t have a wife or kids or any debt (besides a 15 year mortgage); I’m already well on the way to financial independence, and if the car costs me a few years on that goal then I was fully prepared for that.

You can get a used Subaru forester for a really good price. If you like Subarus, I think that will fit your needs and be easier on the pocket book. Plus, they have a reputation for getting well of 200K miles if well maintained.

Not sure the Forester is the vehicle solution for tallgirl or for other tall folks. My son is 6’6″ and he pushes the driver’s seat back as far as it will go. If more than 1 passenger is just as tall, one will have to be in the trunk/hatch!

Otherwise, it is a great vehicle for teens! Not so good for adults used to a smoother ride…like me :)

In the meantime, your husband can creatively demonstrate badassity and make a deposit to his health by stopping to stretch on his long commutes. You can make it a game: explore some nice parks, bond with the daughters over yoga, or even plan errands (like a walk around costco).

I’ve bought two new Subarus. (Go ahead and face-punch if you must – I have an iron jaw.) Those two cars have lasted nearly 22 years and over 452,000 miles so far (the second one is still my primary vehicle).

My current car, a 2001 Outback, is quite comfortable for me, and I am also over 6′ tall.

Me, too. I bought my Subaru Impreza wagon new in 2002 and it’s given me 115,000 great miles. I’m hoping to get another 115,000 out of it. In 2002, this purchase was way beyond my means but I’ve made the most of it.

Second, “$2500 per yer in fuel, depreciation, and maintenance”. Assuming one drives 12,000 miles a year (high for a devotee of yours, right??) a Mazda CX-9 should be doing about 20mpg in suburban usage, consuming 600 gallons. At $3/gal, give or take, that $1800. A Honda Fit will do maybe 30, MAYBE 35 in the same type of driving. 12,000/35 = 343 gal * $3 = $1029, or a difference of $771.

So of your $2500, we’ve explained $771 so far, $1731/yr to go.

Depreciation. You’re comparing 2 $12,000 cars. I assume you drive them until they are used up, or basically worthless. So in both cases, you lose…$12,000. Difference = $0. MAYBE you can make the argument that a Honda is worth $1k more than a Mazda when they both have 200,000 miles on them. $1000/10 years = $100.

So I’ll give you the benefit of the doubt, $871 explained so far.

Maintenance. A CX-9 (presumably AWD) has essentially the exact same maintenance schedule as a Fit. Oil changes, air filter changes, etc. They’re going to be a wash. A CX-9 has a differential that needs a fluid change (Fit does not), probably, I dunno, at 30k miles. I buy LSD fluid for my car for $10 and DIY, it’s easy. So let’s say every three years, that’s $3.33/year. Tires are the other difference. According to TireRack.com, a set of OEM tires for a CX-9 costs $747.84, OEM tires for a Fit are $461.40. Difference of $286.44. Tires should last about 50k miles, so amortized over 4 years that’s $71.61/yr. Add the $3.33 for the differential, you’re at $74.94. I’m going to also assume brakes at the same 50k mile periodicity, and I don’t feel like looking it up, but I bet 4 corners of brakes for a CX-9 costs ~$100 more than the same for a Fit, so let’s make the $74.94 an even $100 ($100 brake difference / 4 years = $25).

Now we’re at $871 + $100 = $971. Insurance? Might be a small increase, but then Hondas tend to be expensive to insure. Property taxes? Car values are the same, taxes should wash, give or take.

But quite frankly, I’m struggling to see where you come up with $2500. I can see ~$1k. $2500 makes zero sense. 10 years x $1,000 + $3,000 = $13,000. Which is a far cry from $30,000.

And we’ll just have to agree to disagree on the lifelong maintenance costs (the Mazda has an extra 2,000 pounds of bells and whistles that tend to break), overall lifespan in miles, and the depreciation effects if you do end up swapping the car for a newer one later in its life (the Honda preserves its value more). I’d also check your local registration and insurance costs – my county charges for road access based on vehicle weight and original sale price, so the Mazda would be several hundred more per year.

But the REAL difference in these cars is the depreciation in earlier years: The big Mazda is over $30,000 brand new, and the fit only $15k. Within five years, they are worth almost the same amount, meaning it depreciated almost $3000 PER YEAR faster than the Honda. This depreciation differential will continue over the remaining time you own it (the Mazda might become a virtual write-off in 10 more years while the Honda will fetch a few thousand). Many people reading this have even newer SUVs, so they would see even bigger savings. Check out this coincidentally perfect example a reader forwarded me from the forum: http://forum.mrmoneymustache.com/ask-a-mustachian/sell-a-paid-off-2012-toyota-4runner/msg687649/#msg687649

It’s good to see that you are doing your own math, as everyone should for their decisions. Mine always places a higher premium on fuel efficiency: Some estimates put the actual cost of gasoline including externalities at $6 or more per gallon. So I am willing to spend more to save gas, because my own internal pain at burning gas (or enjoyment from not burning it) is closer to that figure.

Chris22, “wealth difference” also includes the lost appreciation you would receive in putting each years savings into an index fund, other investment, or the saved interest payments in paying off credit card debt, a mortgage, or student loans.

Gained appreciation (or reduction in interest bearing principal on loans) is compounded, and so the $30,000 figure is actually conservative assuming $2,500 a year x 10 and $3,000 cash.

I own two things that fit this criterion: my house and my spare car. Help me figure out whether to sell them. My gut says absolutely not to the first but maybe to the second.

The house: I bought it after the divorce because it was near where my kids lived. Then their mom moved them 25 miles away. In my line of work, I work for a year in one location, then two in another, then eighteen months in a third, all over the north side of my town. My house is about as centrally located to all that as can be, but it all involves driving to work, pretty much unavoidably. It’s a modest house, paid less than 100k for it, in a safe and quiet neighborhood. Property taxes are shockingly low. Buying in my kids’ mom’s neighborhood would land me in a house costing 3x as much and the property taxes would be off the charts. Buying near work would have me moving all the time. Bleh, meh. I feel like staying put makes the most sense. Feedback?

The car: It’s a 2003 Toyota Matrix with 165,000 miles on it. It was my only car until my dad decided to sell his low-mile, well-cared-for 2006 Ford Focus two years ago. I bought it and it became my daily driver. But the Matrix is in poor cosmetic shape – paint problems, dents — and is worth maybe $1500. I figured it’d be a great car to keep around when my sons, now teens, are here so they can drive it. Insurance is the major expense, but with just liability on it, that’s $300 a year. It gets driven very little, maybe 2000 miles a year; the boys don’t drive it much if at all. I tend to drive it on weekend errands just so it gets driven. If the younger boy gets a job I might let him use it to get to work. I dunno. Keep it or sell it?

I think the Matrix falls under the category of “worth more to you than it is on the market”. Because of cosmetic concerns it doesn’t fetch enough to make it worth selling and purchasing another reliable beater for the kids to drive. Basically, a well cared for not too high of miles cosmetically-challenged Toyota Matrix is exactly the kind of thing I search for on craigslist every day. Even better if its a Pontiac vibe. Keep it!

Thanks Richie and Marie! If I didn’t own the house, I’d probably buy a condo smack dab north central in my town — lots of them available for well, well below 100k and it would put me equidistant to everywhere I might work. I like staying put — renting and moving all the time just sounds dreadful.

As for the car, yeah, it’s worth more to me than to the market. And I freely admit to an irrational attachment to it. But given its reliability history, I trust it more than I’d trust a car I could buy for what I could sell it for.

My 2003 Toyota Matrix was the best purchase I ever made. I’ve got about 140k on it, but she runs like a champ. Dings, dents, a broken fog light, stained carpets and peeling paint, but I really don’t care. She was cheap to buy, cheap to maintain, and cheap to drive. And I can fit an astounding amount of cargo in the back, so I have no need for a pick-up truck. I have an 08 Nissan that I would rather ditch.

In my country (NC), we can “garage” a car. Meaning insurance company is notified car won’t be driven, so while still registered and insured, there are no insurance payments while garaged. When you want to drive it, once a year, call insurance and let them know to reactivate it.
The more you know…

I fully agree that if you have something sucking money out of your life that you do not get any joy out of that you should ditch it right away, even if you have to eat the cost up front. However, when you use this mindset on your investments, it because a little less useful.

The S&P500 is around an all time high right now. Does that mean if you have $100,000 invested in it that you should treat it as if you had $100,000 in cash, and if you wouldn’t invest it all today that you should sell? I’d personally have a hard time investing everything back into the market at today’s prices, but I think that selling it all right now would be a mistake. For one, you’d likely have to pay a bunch of taxes on your gain, and two the market could scream higher from here, in which case what would you do then?

For consumer goods and other luxuries, this style of thinking is spot on. For investments, I don’t think its the proper way to think.

This hits the nail on the head. I recently sold a gas guzzler truck I was only keeping because of the time and money I put into it. It was costing me thousands a year and I wasn’t even driving it. I sold it and bought an index fund,which I’m going to use to eventually pay off some student loan!

My advice to my 19 year old self would: just keep riding your bike and do not get a credit card when you are 27. Stay in the small studio apartment downtown instead of moving to a bigger apartment in the suburbs. Don’t try to impress anyone.

Very good advice. So many people worry more about what other people think of them rather than trying to figure out what’s important to themselves. They get caught up comparing what they have with what other people have, not realizing that those other people are likely living way, way, way above their means using credit cards to fund their lifestyle while paying the bare minimum on all their credit card balances. People need to figure out what is important to them (not other people), then live their life accordingly.

I’m 26 and I’ve actually done pretty well so far. My student loans are paid off and I’ve started building up some pretty good money for my age. If I could go back to 19 I would tell myself to get invested in the stock market sooner. I was pretty scared (like a lot of people my age) to jump in after seeing my dad’s 401k lose a ton of it’s value in 2009. I’m just really starting now and I’m still pretty young…but I lost out on 7 years of growth.

Putting on my economist hat, I’d say it’s all about maximizing ROI. Buying more car and house than you need does not max it. Abandoning a car for a bike may not either. Especially if you have kids and need to get from point A to B in the shortest time. Getting a second-hand car or a plug-in or electric car is a fine alternative if conserving time is a factor. Biking affords exercise at expense of time. Alternatively, standing up and walking around the house is a fine alternative, considering episodic workouts don’t make up for inactivity throughout the day.

I liked your example of the property versus index fund investment. Here in the UK, where every man’s home is his castle, it is impossible for most people to even begin to believe this example. With the media all based in London, every other news story is about someone selling their garden shed in Chelsea for two million dollars. Every week, the Sunday Times feature an interview with a different “celebrity” where they ask the same set questions on financial matters. One question asks “Is property or pensions the better investment?” I reckon 90% of the interviewees answer “property”. Only about 5% state “Both” which, I think, is probably more correct. Down the pub, if this subject comes up, I’m shouted down when I try to argue that index funds might be a better investment over ten years than a “buy to let” flat. Some people get positively angry over the subject, which probably serves us right for talking about money over a pint.

The corollary of selling your unneeded items is that is does not matter what you paid for them – the only thing that matters is what the current market will bear, and when you are selling at a yard sale/Craigslist, those markets typically do not bear a lot!

MMM, can you share what the taxes were for selling your rental property? Does that figure into your profit/loss on it as well? As an accidental landlord myself I’m always struggling with whether to sell the property, take the $100k+ tax hit, buy some index or REIT funds, and lose the worry-and-repairs factor, or keep cashing the big rental check every month…

I love your blog and I am a loyal reader but I respectively disagree with you on the idea of used vs. new cars. I recently had a used (2003) car fail on me (require a new transmission) after less than 10,000 miles in my possession. Instead of replacing the transmission (at a quoted cost of $5,200 plus tax), I opted to call the car a sunk cost, trade it in for what I could get ($1,000, a loss of $6,000) and happily buy and finance a new 2015 Hyundai Elantra.

Yes, I said “financed!” With interest rates as low as they are (I got 2.24% for 5 years) why not? I would rather keep my money in investments earning at least 5% per year and pay the car off slowly along with the piddly interest rate than give it all away at once.

Hyundai has the wonderful 10 year / 100,000 mile warranty which means I’m only responsible for routine maintenance. Buy a used car, and with any problem you’re the one paying! When you buy used, you don’t know how well the previous owner maintained it or when things will go wrong and what they will be. With a used car you get a 0 day / 0 mile warranty. The warranty alone makes the cost difference of new vs. used worth it.

Also, my Elantra has been averaging 35-37 MPG whereas older models, not as good. Sorry but even after reading your blog post, I would buy the new Hyundai over again.

Brian! You did make one of the best choices on the new car market, so I will go easy on you here. But your decision-making process is TERRIBLE – the same one that leads everyone to keep themselves broke for life!

First of all, repeat after me: NEW CARS ARE ALWAYS MORE EXPENSIVE THAN PROPERLY CHOSEN USED ONES. Always. By a large margin. How much is the annual registration and insurance on the new car vs. the old one? How much will it depreciate in the first three years? About the amount it would take to keep a GOOD used car on the road for 10 years.

You took your one-off anecdote (an unreliable car with a massive repair bill), and extrapolated it to apply to used cars in general.

Consider this other anecdote: I’ve had my Scion for over six years, bought it with 57,000 miles and it is now in the low 80,000, and it has not given so much as a MISPLACED SQUEAK, even with just DIY oil and filter changes as I follow the manual’s scheduled maintenance plan.

Meanwhile, some friends rented a 2015 Ford F-150 luxury racing truck ($30,000+ list price) for a rafting trip. With 90 miles on the odometer, it DIED on the huge Mountain Interstate, leaving them dangerously stranded.

Your anecdote indicates 0% reliability for used cars, 100% for new. My story is exactly the opposite. How do we resolve the discrepancy? By looking at the statistics, which are told by the Consumer Reports and Edmunds used car buying guides – incorporated into the article I linked to elsewhere:http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/

Reliability comes from the quality of the car even more than from its age.

I’d like to point out that just because you have a warranty doesn’t mean your car is magically unbreakable and never going to have problems. I read about a guy who bought a brand new Hyundai Santa Fe in 2011 and within 2 years he was on his 3rd transmission.

Sure the dealership replaced the transmission for free under warranty, but the owner had to pay for new transmission fluid each time because apparently the fluid is not under warranty! I don’t remember the price, but it wasn’t cheap either. Not to mention the hassle of having your new vehicle that you paid a small fortune for breaking down and being towed to the dealer for weeks while they repair it, multiple times!

Yet another great point – I consider a warranty to be worth very close to zero, because if something breaks, you have already lost. The time and hassle involved with coordinating a bunch of inefficient people to fix one of your consumer products is usually more expensive than the consumer product itself.

So instead, I focus on getting stuff that doesn’t break, and knowing how to maintain it myself to further decrease the chance of it breaking. So far, so good: in 20 years of car ownership, I’ve only had to take a car in for mechanic repair once. And even that was because I had a fairly unreliable 1994 Ford Probe GT at the time, and YouTube did not yet exist. Once I switched to simple and well-made Japanese cars, the reliability record has gone to 100%.

When I bought my brand new car, (shame) I thought the 3 year/100Tkm warranty included was awesome. No worries for 3 years!

Here is the catch. There’s a maintenance schedule which forces me to return to the dealer every 10Tkm for check ups. All 10 sessions combined cost a staggering 20% of the initial purchase price of the vehicle. If I decide to skip a maintenance check or do them myself or go to a third party provider, my warranty voids!

I love your blog, and agree with your statements MOST of the time. But you cannot categorically say that new cars are always more expensive than used ones. You can say that USUALLY they are, but not always. In July of 2009 we owned a 2002 Ford Focus and a 1992 Plymouth Voyager. The Voyager was rusted out, had a smashed window from vandals, and had 200,000+ miles on it. I could have probably sold for $300. The Cash for Clunkers program came along, and overnight my 7-year old Focus plus the governmental-subsidized Voyager were worth almost a brand new 2009 Honda Fit. Even with a slight increase in insurance, this was a great deal, admittedly taxpayer subsidized, and not representative of normal car economics. The Fit was my first and only brand new car, and I have to say I’ve loved driving a new vehicle. I doubt I’ll ever buy another new one, as the Fit and our 2007 Mazda 5 should keep trucking for many years. Yes, I totally admit this is a one off anecdote.

I have to agree. Full disclosure, our current two cars were purchased new (for cash), a 2009 Honda Civic and a 2006 Toyota Matrix.

Prior to that though, every car we bought was used:
1986 Chevy Nova
1990 Ford Escort
1994 Saturn SL2 (okay, this was a *bit* of a lemon, but still not as bad as some cars)
2001 Chevy Prizm (aka Toyota Corolla, sadly was totaled in an accident)

We never had problems with these cars, and drove them well over 100,000 miles.

And consider the Matrix, blue book value around $5000, will probably last another 10 years at least.

Just chiming in to say I love my Matrix. I bought it new in 2008 and really have no regrets. I did extensive research before I made my purchase, and while a used one was inarguably cheaper, I knew I planned to drive the car for well over a decade. When you keep a car that long, Consumer Reports told me buying new made sense. I’m now at 79,000 miles and expecting MANY more happy years together. Additionally, I was in an accident two years ago at 65 mph (hit from behind on the interstate; a complete 180 across a lane and a half of traffic into a retaining wall)—my passenger and I walked away from it because of the excellent safety features on the car. Over $5000 worth of damage but they rebuilt it and it looks brand-new. I won’t argue against people buying a used car, but I don’t regret having bought new.

Your interest rate of 2.24% for 5 years certainly is low, and those who understand concepts such as time value of money and opportunity cost would find it compelling. But one thing that a great many people forget when talking about interest rates on auto loans is that your lender will almost always force you to get comprehensive and collision insurance. Many (most?) Mustachians, driving small sensible cars that they could afford to replace if they needed to, would forego this insurance. Being required to add collision, if you would otherwise do without it, probably raises your effective interest rate to 10% or more.

Great point – I have always run my cars with NO collision/comprehensive insurance. You save money every year in insurance, and it keeps you financially honest with yourself as well:

If you can’t afford to have your car trashed and potentially to replace it if needed, you can’t afford that car yet. Also, if you can’t go without a car for the few months it might take to save up cash to buy a new one, you have designed your life to be too car-dependent.

Both are good lifestyle flaws to keep open and sore so you are forced to solve them, rather than masking them with a brand-new insured car.

AMEN – this particular comment and blog post has been my go to during family and friends discussions. They think I’m insane or at best completely confused on how to ‘protect my investments’. But yet they are in awe that I have had no car payment for going on 8 yrs. I swear they could feed a small country with all the vehicle costs they incur. UGH.

The simple math of used cars shows that even buying a complete lemon every once in a while still works in your favor. On a cost per mile basis, the cost of an new elantra will be 13.5 cents per mile. Of course, that’s assuming your elantra will make it to 180,000 miles. It’s not too hard to find a quality car with 100K miles on it for around $6K or 7.5 cents per mile. So even if every 4th car you buy is a complete bust (which is rare) you would still come out ahead. If you focus on cars with over 150K miles you can do even better. It’s not hard to get below 5 cents per mile if you find a well maintained reliable car.

You might be right with a Hyundai…I’m not sure. With my last new Honda, it was still worth $5,000 when I sold it with 185,000 on it. Bought it for $21,000. That’s 8.6 cents per mile. Still not as good as the used Civic I had before it, but not bad. I guess my point is not to forget about the money you sell your car for at the end assuming you don’t drive it until it’s not worth anything.
(BTW, sometimes the sweet spot on cost per mile isn’t keeping your car until its useful life is over)

I think I must have had mustachian dna back in the 70s when I just couldn’t go to an expensive university even with a huge scholarship because I didn’t want the debt to tie me down. Spent most of my 20s in Israel on kibbutz — could never have done that with student loan debt. We managed 5 degrees between us there before the one that I did in the States involved student loan debt. Still, that was an adventure to live with two kids on grad school stipends and not go into debt (other than those student loans). Bought a modest home and didn’t trade up until we were pretty clear we could pay the kids’ college fees the way we wanted to.
True, we live too far out in the country for my commuting husband’s health. But I think that rather than living in town, we’ll look more in the direction that I’ve gone — working from home. I teach entirely online. So the more days he works from home, the less stress.
We travel a lot. Not retired, but not letting work get in the way of life. Not sure what I’d do differently. We have good savings and old cars. A small old boat that we get a lot of joy out of still. Our kids seem to have their heads on straight about work and studying and savings and 401ks and renting and life. Looking forward to the future!

I have the cognitive bias that you are speaking about. I have a 27″ iMac that I bought brand new on credit almost a year and a half ago. At the time I was trying to work full time as a Web/App Developer. I even got a few clients and justified the cost to myself to thinking about it as an investment. Now I’m working a full time Job and have two computers from work. I barely even use the iMac. I much prefer to use on of the work laptops or my iPhone or iPad mini for browsing the web. I keep it around because I still want to develop apps, I just don’t have the time and after sitting at a desk all day at work, I’d much rather work on a laptop. (have used iMac <30 times in past 6 months)

I gave my 2009 MacBook Pro to my dad, who I currently live with. I don't know if I should sell it just in case I want to use it again one day. I'm in a pretty poor position financially. I owe student loans that are deferred at a 7% interest rate. I have credit card debt that I owe (Not accumulating Interest). I'm sure I have a terrible credit rating.

What's the threshold for when it's worth it to sell stuff. I have an iPhone 5s, iPad Mini, Kindle Reader, Kindle Paper White. I bought computer equipment for a company that I contracted for and was never reimbursed. It really is an emotional struggle to sell these things and recoup what's owed to me and why I have avoided it.

At what dollar amount is it worth keeping the item and not selling it.

Dude, when you are in a debt emergency like you are, there is NO threshold – EVERYTHING must go, and you don’t get to buy anything fancier than potatoes until you at least get into a positive net worth.

This blog and the fancy softie decisions are for people further along the spectrum who can afford to make these choices. Your hair is still on fire – grab a bucket of water!!!!

That’s what I was thinking. I am going to sell it all I just needed that little push.

I found the blog two weeks ago and I have been reading all your old post in any free time I have. I have even read the your debt is an emergency. However, for some reason it just didn’t kick in immediately that I should sell even the small things. Perhaps because you talk so much about big purchases like houses, cars, it just didn’t quite register until this post.

I expect to get a lot of resistance when I go to sell these things from my parents and others who probably think I’m crazy. Last time I tried to sell it all including MacBook, bike, and golf clubs my Dad talked me out of it and convinced me to keep them using the sunk cost argument. I’m glad I didn’t sell them because I wouldn’t have used the money wisely to pay off debt. I likely would have spent it frivolously. But now I have a purpose for selling them and I will use the money to pay down my debt.

What’s your take on my Bike situation. I just started riding my bike everywhere this past week after reading your great posts. I bought it for around $700 after tax about five years ago. Should I sell it and try to buy a cheaper one. It’s a Trek hybrid and in great condition and without much use. I’ve read your post where you even promote buying a new bike. I don’t know much about buying and selling used bikes and for that reason I’m leaning towards keeping mine or putting it at the end of my list and only worry about it once everything else is sold.

I still commute to work by train 2-3x/week ($20/day). It’s a four hour round trip commute each day, but I’ll worry about that once I’ve put on the fire burning my hair off. I live at my parents house so I don’t pay any rent.

As for the food situation, I stopped eating out starting last week and started bringing in my lunch to work every day, while it is inconvenient, I am happier doing it and I now mock those who do things for convenience. I live with my parents and we eat vegetetarian (lentils, rice, and potatoes) and my Dad covers the cost for now ($0)

Another question, what’s your take on paying for education. Mid June (before I found this blog) I signed up for my MBA and it started July 1st. It will cost me $3300 total which I pay by making monthly payments. The money mustache part of me says to scrap it and call the college and beg for my money back. Then start it once I have all other debt paid off. The consumer part of me says just do it and get it over with. I need the units because I want to be a CPA/Tax Accountant as my ER job and sit on the board of some non profits. I have the 8-12 Hours of free time on the train each week to study so it’s perfect timing in that regard for getting the MBA. Plus I figure it will increase my ability to earn and find other jobs. What’s your take, scrap it right?

I’m 24 and in my first few months as an Analyst/Data Scientist (my new manager actually pointed me to your blog) I make $80k/year and with raises in the future, your blog and me not being so wuss I’ll be well on my way to ER/Financial independence.

I’d add that at a certain point resale electronics are worth zero. You’ll be lucky to reap $25 for a used Kindle so just hang onto it and use it. I have a circa 2009 Kindle that is worth zero in resale, but still functions just fine as an e-book.

Dude, you make 80K/year, enjoy free rent and food, AND YOU ARE DEFERRING YOUR STUDENT LOANS??? Am I the only one that’s throwing up in my mouth right now????? The smoke from your engulfed hair problem is making it hard for me to breathe. I thought you had to meet certain income limits to defer student loans. I hope 80K/year is not below that limit!!!

Fortunately for you, it should be pretty easy to get out of your situation. Sounds like you have a pretty intense electronics addiction. Getting over that would be a great start.

Why do you have an iPad mini, a Kindle Reader, AND a Kindle Paper White??? Were they gifts? It seems like there is a LOT of overlapping functionality between those three if you personally purchased them. If you bought them for yourself, what was your rationalization for doing so? I just curious.

I like the idea of being able to talk to my 19 year old self and giving myself advice based on what I know now. Here’s what I’d say:

1. Don’t even think about getting a 9-5 job and settling down into a frugal lifestyle yet. Do all the crazy sh*t you need to do and get it out of your system. If that means spending every dime on a new stratocaster or making a low budget film then do it. Don’t make excuses and don’t let family and societal expectations control your destiny. If you want to, practice your guitar 5 hours a day, write and record as many songs as possible and tour as much as possible then do it. Live life like it could end at any moment…don’t be afraid to indulge your id as only a 19 year old can.
2. Once you’ve gotten all of that out of your system, if you’re ready to live in the normal world embrace it unapologetically and bust your ass making money. Take no debt and save 70% of what your earn – whatever amount that is doesn’t matter, but save like the latent frugal MF’er you are….and remember grasshopper…less is more – learn it, live it, love it.
3. Buy a house and bike asap and write down a plan to save enough money to retire in 10 years thru frugal based investing. Buying a house is as much about focus as it is about equity. Even if you don’t retire in 10 years knowing that you can will lift a huge weight off of your shoulders. Life will improve dramatically even though nothing really changed, just knowing is enough. The air smells sweeter and the water tastes cleaner when you get to that day when you know you can realize your can walk out the door of any job and not have to worry about money.
4. Most importantly believe that it can be done, because it can be done. It’s not easy and there are plenty of setbacks to knock you off track, but if you keep busting your ass year after year you will make progress and eventually big progress. Be positive, be optimistic and be thankful that you even have the opportunity to have dreams like this. So many people in the world have no such opportunity. Never squander or take for granted the gifts that you have been given by pure luck of where you were born.
5. I would end the conversation with myself by telling myself a cliche that never fails to elicit rolling eyeballs from 19 year olds…the journey is way more fun than the destination, but the destination is pretty damn good too.

lol, probably not. My 19 year old self was a loud mouthed know it all contrarian who had to learn everything the hard way. Even at 19 I had latent frugal tendencies, but they were buried deep in my idiotic teen reptilian brain. Ultimately I spent every dime I earned and several thousand more I didn’t have from 19 – 24. As much as I regretted doing that to myself, it forced me to come to terms with my financial stupidity and reverse course abruptly, never again to find myself in out of control debt. For some reason this lyric by the Byrds reminds me of my 19 year old self: “but I was so much older then, I’m younger than that now.”

Methinks you’ve strummed a guitar or edited on FCP X maybe? I agree about the age thing.
For some reason people my age didn’t think we’d make it to 30. I’m not sure how that got started, but any age over 30 seemed like it would be a drag…(The Who went as far as to proclaim – “I hope I die before I get old “). Then when my friends and I hit 30 it was the “new” 20 and each year we just kept saying this new age is the new “20”, which is no doubt ironic because my 20s were not all that great. Now I look forward to each day with a lot of wins and almost as many losses under my belt but happy with the knowledge that we do have a lot of control over our personal destiny especially as it relates to money and wealth. So if you ever want to jam let me know!

my favorite parts of this post:
1. it’s an excellent example of how MMM can screw up at something- in this case investing- and things are still fan-fucking-tastic.
2. if you read MMM carefully, he is very clear over the course of his blog that buying is not always better than renting. however, this is a point that can always be made louder. this blog post is a great example of when owning real estate doesnt work.

Leave a Reply

To keep things non-promotional, please use a real name or nickname(not Blogger @ My Blog Name)

The most useful comments are those written with the goal of learning from or helping out other readers – after reading the whole article and all the earlier comments. Complaints and insults generally won’t make the cut here, but by all means write them on your own blog!

connect

welcome new readers

Take a look around. If you think you are hardcore enough to handle Maximum Mustache, feel free to start at the first article and read your way up to the present using the links at the bottom of each article.

For more casual sampling, have a look at this complete list of all posts since the beginning of time or download the mobile app. Go ahead and click on any titles that intrigue you, and I hope to see you around here more often.